IMF chief says global economy weathered Iran war shock well
Investing.com -- The International Monetary Fund said today that the world economy has handled the energy supply disruption from the Iran war better than expected, though mounting fiscal pressures in some nations remain a concern.
IMF Managing Director Kristalina Georgieva spoke to reporters ahead of next week's Group of 20 finance leaders meeting in Asheville, North Carolina. She described a "tug of war" between the negative Gulf energy supply shock and growth benefits from the artificial intelligence investment boom that is now spreading beyond U.S. borders.
The global economy is "resisting powerful headwinds from high debt levels, stubborn inflation, and trade tensions. Thus far, it has weathered the energy shock caused by the closure of the Strait of Hormuz better than we feared, thanks to a combination of factors," Georgieva said.
Several factors helped ease the energy crisis, including drawdowns of oil and gas reserves by many countries, increases in non-Gulf energy supplies, lower energy demand, increased renewable energy capacity and a shift back to coal power generation in some places.
Artificial intelligence investment in the U.S. is keeping corporate earnings and consumer spending strong, Georgieva said. Other countries are ramping up data-center construction and AI hardware supplies, with Thailand mentioned as one example.
Georgieva said risks to the global outlook were more balanced than in April but still tilted to the downside. She pointed to mounting fiscal pressures as evidenced by rising bond yields and a stalled disinflation process.
A renewed rise in oil prices could fuel inflation, forcing central banks to retain restrictive policy stance, she warned. Central banks must be "laser-focused" on price stability, Georgieva added.
All countries need to tackle fiscal problems and present credible plans to ensure debt and deficits are on sustainable paths, she said. The AI future carries risks for financial stability and the possibility of low-income countries falling behind.